Size-Based Regulation and Bank Fragility: Evidence from the Wells Fargo Asset Cap
With the Lunch Seminar series, the Department of Finance is bringing eminent and up-and-coming researchers from around the world to Luxembourg.
Abstract:
We argue that heightened regulation on large banks contributed to the rise in fragility of smaller banks revealed by the 2023 regional bank crisis. In 2018, U.S. regulators restricted Wells Fargo from growing beyond $1.95 trillion in assets. Wells Fargo gave up large uninsured deposits to stay under the asset cap. We find that smaller and less regulated banks stepped in to fill the gap. Banks more geographically proximate to Wells Fargo experienced an influx of flighty uninsured deposits, particularly during the COVID-19 period. In turn, these banks experienced higher deposit outflows once monetary tightening commenced, and had lower equity returns following the collapse of Silicon Valley Bank. Additional analyses show that the deposit reallocation is not driven by local demand or general proximity to large banks.
About Prof. Tianyue Ruan:
Tianyue Ruan is an Assistant Professor of Finance at NUS Business School, National University of Singapore. Her research areas are banking, financial stability, and household finance.
Language: English
This is a free seminar. Registration is mandatory.
Cold lunches are provided to registered participants.
Supported by the Luxembourg National Research Fund (FNR) 17984041